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Employees Share Option Scheme at Aitken Spence Hotel Holdings

Aitken Spence Hotel Holdings Limited plans to introduce a stock option scheme for employees, inclusive of executive directors of the company and its parent company, the company’s shareholders have been told.

The company has summoned an extraordinary general meeting on February 2 to consider a resolution to set up this scheme under which up to 5% of the company’s issued share capital can be offered to employees of the company including its executive directors and its parent company.

Shareholders have been told that this scheme will be worked under the guidelines issued by the Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE).

Aitken Spence Group Chairman Ratna Sivaratnam explained that the resolution to be placed before the members of the company provides for executive directors of other group companies directly involved with the hotel business to be also eligible for the stock options.

The resolution that will be considered next month provides that shares under this scheme may be offered in their entirety or in instalments at the discretion of the directors. No single employee shall be entitled to acquire through such scheme more than 1% of the issued share capital or such other percentage as may be determined by the CSE from time to time.

These shares will be offered at the market price prevailing on the date of the offer and the number of shares offered to each employee would be determined at the discretion of the directors based on the performance of individual employees.

Provision has been made to monitor the scheme by a committee of persons with no conflict of interest.

Employees offered stock under the scheme must accept such offers within 60 months from the date of the offer. If the shares are not taken up within this period the offer will automatically lapse.

Aitken Spence Hotel Holdings said that in terms of the SEC and CSE guidelines, the essential features of the scheme together with its material details will be disclosed in the company’s annual report.

Where any rights or bonus issue is made by the company in the period between the date of the offer and the exercise of the option by the employee, the offer price may be adjusted by the board in consultation with the company’s auditors to take account of the change in value of the share.

Aitken Spence Hotel Holdings is a major player in the leisure industry in Sri Lanka and the Maldives, owning several resort hotels both here and in the Maldivian Republic.

Asia Securities offer on-line trading

Asia Securities (Pvt) Limited has become the first member of the Colombo Stock Exchange (CSE) to launch an on-line trading system.

The company’s Managing Director, Mr. Asanga Seneviratne, said that with this facilitity they were significantly enhancing client access to their various products and services.

He was hopeful that this would enable them to attract a whole new category of investors "who we could call `internet traders’ and perhaps Sri Lankan expatriates.’’

Seneviratne pointed out that share trading on the internet had grown over the last two years mainly in the developed stock markets of the USA and Europe. The trend was fast catching on in Asian markets as well, with Singapore leading the way.

He said that last month, the giant Tata group in India had announced plans to launch on-line broking in partnership with the world’s largest discount broking firm, T.D. Waterhouse.

Asia Securities said that the new internet equity trading offered would enhance accessibility to the Colombo Stock Exchange and investors who previously relied on brokers’ advice will have easy access to a comprehensive range of information that would help them to trade profitably in the market.

"All types of investors - local retail, high networth individuals as well as overseas non-institutional clients are now in a position to make well informed decisions with regard to their share portfolio,’’ Asia Securities said.

The brokerage claimed that this way of investing had proved to be the most attractive to risk-averse investors.

The services offered by Asia Securities to its clients with internet access and password include the ability to: track every bid/offer and trade that take place on the CSE on a real-time basis, i.e. `as it happens’; recourse to the best research on all listed companies along with the latest annual & quarterly reports; financial summaries of all listed companies for the last five years; access an archive of all corporate announcements.

Asia Securities also said that a key feature of the system was a powerful search function enabling clients to pick up stocks that are under or over valued to suit their personal investment preferences. For example, they could find listed companies that have earnings per share (EPS) of over 20 and a price earning ration (PER) of below 5.

At present trading via the internet is limited to placement of orders on-line, Asia Securities said.

Talawakelle adds a spark to trading on CSE

Having climbed to a 18-month high of 602 prior to the December 21 presidential election, the Colombo stock market has shed almost all its gains subsequently, broking firms noted.

Asia Securities said in a market report that trading in the new year (and the millennium) was "lackadaisical’’ with share prices falling amidst weak local sentiment and little foreign interest.

At the close of trading on Friday, the CSE All Share Index closed at 549.6 while the Milanka Index stood at 892.5.

Both indices had tumbled much more but the starting last week of trading of Talawakelle Plantations shares gave the All Share Price Index some much needed momentum. Talawakelle opened on Wednesday at Rs.13.50 - Rs.3.50 above the issue price of Rs.10, and closed at Rs.17. It continued to gain on Thursday touching a high of Rs.19.25 before closing at Rs.17.75. On Friday, some of the gain was shed with the share closing at Rs.16.75.

Analysts said that a major shareholder in the company was interested in the share. The three main holders with the controlling interest are Hayleys, Aitken Spence and Merril J. Fernando.

The impetus provided to the market by the Talawakelle share took it up from the dismal lows it had sunk. Since Talawakelle began trading nearly 3 million shares were transacted on the CSE.

HNB non-voting shares likely to trade this week

The Hatton National Bank (HNB) non-voting shares were due to be traded on the Colombo Stock Exchange (CSE) last Friday but secondary market trading had not taken place that day. Investors expect trading to begin this week.

Analysts are watching how the non-voting shares, offered at Rs. 70, will fare on the trading floor. These shares were aggressively marketed by HNB itself and the bank’s managing director, Mr. Rienzie Wijetillake, went on record saying that share brokers didn’t help to make the issue a success.

On Friday, the HNB voting share declines slightly from Rs. 84.00 to close at Rs. 83.25. The Commercial Bank of Ceylon, the only other financial services company having two classes of voting and non-voting shares, has consistently demonstrated that the voting shares command a substantial premium. Most analysts expect this to be the case with HNB too, but the question is what the difference will be.

HNB is optimistic about these non-voting shares performing well on the secondary market as the issue which closed on November 12 was oversubscribed despite the negative market sentiments that prevailed at the time the non-voting shares were placed on offer.

HNB said that over 10,000 new investors have become shareholders of the bank and this will ensure that its non-voting shares will be very liquid on the CSE trading floor in comparison with its voting shares.

A bank spokesman also said that 1999 profits were in line with market expectations and HNB should post a positive profit growth for 1999.

Analysts considered this creditable in the light of the fact that most financial institutions are expected to see 1999 profits decline from the previous years.

Ruhunu Hotels bottom line still in the red

Ruhunu Hotels & Travels Limited has returned to operational profitability during the first half of the current financial year but not succeeded in earning enough to defray depreciation, deferred expenditure and interest charges and keep its bottom line in the black.

The company which improved turnover to Rs.26.3 million from Rs.0.6 million earned during the first half of the previous year, when the hotel was closed from May to November for refurbishing, posted an operating profit of Rs.5.3 million for the period under review, up from a loss of Rs.2.4 million a year earlier. With other income of Rs.0.6 million, the company had an operating profit of Rs.5.9 million compared to Rs.2.3 million a year earlier.

But depreciation charges of Rs.3.8 million, deferred expenditure of Rs.0.4 million and interest of Rs.2.9 million swallowed the operating profit leaving a pre-tax loss of Rs.1.2 million, down from a loss of Rs.6.1 million a year earlier. There was no liability for taxation.

The company which was carrying forward retained losses of Rs.68 million is now carrying forward losses of Rs.69.3 million as at September 30, 1999.

Ruhunu Hotels has an issued share capital of Rs.82.9 million and a capital reserves of Rs.89.9 million. Its revenue reserves are a negative Rs.69.3 million on account of carried forward losses.

The WTO fiasco III

by Kanes
The United States does not appear to have abandoned hope of launching a new round of WTO trade talks despite the dramatic collapse of the "Clinton Round" in Seattle a few weeks back. It seems to have realized that it and other industrial countries have to be more sensitive to concerns of the developing countries, which make up two-thirds of the WTO membership - their concerns that they will not be allowed to emerge from situations of poverty and income inequality. Launching a new round of talks, however, may not be as easy as the US thinks, for America’s credibility has suffered a severe setback after the failure of the recent talks and many appear to have lost confidence in its sincerity and ability to provide leadership in settling international issues. Besides, there are several other complicated issues which may prove intractable unless the US and other developed countries are prepared to make some sacrifices in order to build and operate a rule-based multilateral trading system which will bring equal benefits to all countries.

America’s Ruthless Drive to Capture Markets

America’s underlying objectives in trade have become clear in the "Clinton Round". The first is to use the WTO to break open domestic markets for American transnational corporations to sell and invest; the second is to use the WTO to reduce competition to American industry from cheap imports, particularly from developing countries by banning child labour and raising minimum wages; the third is to preach free trade and level playing fields to others but restrict their exports whenever they threaten domestic industries. America is hailed as a free market economy practicing free trade, but it appears to be becoming more ruthless as an exporter and more protectionist as an importer, more concerned with national interests than observing the spirit if not the letter of WTO rules of free trade.

The US tends to take unilateral action under Section 301 of the Trade Act by imposing trade sanctions against any country which it think is not opening its market wide enough for US products. This is nothing but intimidation contrary to all accepted international trading rules. For example, in an effort to force open Japan’s car market, the US imposed a 100 per cent tariff on 13 types of imported Japanese luxury cars, but Japan refused to yield and the European Commission condemned it. Further, the US government pressurized Japan to provide a market share in Japan for Motorola’s cellular telephones and to open markets in Japan, South Korea and Taiwan for US tobacco giants. How desperate the US is for markets for its transnational corporations is clearly demonstrated in its dispute with India. India has been having import restrictions for many years and it had justified them on its balance of payments situation. The US sought a WTO ruling to challenge Indian restrictions on import of consumer goods and agricultural, textile and petroleum related products, which it said, constituted the largest barrier to increasing US exports to the Indian market. It was further shown that the IMF had determined in 1997 that India no longer had balance of payments difficulties that could justify import curbs. The WTO ruled against India and the recent decision by India to liberalize its import regime and open the door to nearly 900 previously restricted foreign products is related to the WTO ruling.

The US pressurized the East and South East Asian countries to liberalize their financial markets prematurely in order to provide opportunities to US banks, insurance companies, brokerages, and others to get into these profitable markets. It was this premature financial liberalization that contributed to the East Asian currency crisis and the collapse of these economies. Further, liberalization as a condition for IMF help facilitated the acquisitions of large domestic firms of South Korea and Thailand at rock bottom prices by US transnationals such as General Motors, Ford Motors, Procter and Gamble, Intel and Coca Cola. The US bullied China in the recent talks to make many liberal concessions to American exports and investments as a condition for admission to the WTO; China is too large a market for the US transnationals to ignore. The trade wars in bananas, hormone-treated beef and genetically modified crops (which are discussed below), have all been waged by the US in order to capture the European market for these American products. In the case of bananas for instance, the US fought to deprive the poor countries in Africa, Caribbean and the Pacific from getting preferential treatment for their banana exports to the European Union in order to enable its own banana transnationals like Chiquitas to get into the European market.

Trade Wars

There seems to be no end in sight to the trade wars between the US and the European Union. We have already referred to the banana war where the WTO ruled against the European Union for its preferential treatment of banana imports from Africa, Caribbean and Pacific countries which discriminated against imports from America. The WTO permitted the US accordingly to impose sanctions on $191 million worth of European imports. The other trade war is relating to beef where the European Union has banned the import of hormone-treated beef from the US on the grounds that hormones cause cancer. There too, the WTO has ruled against the European Union stating that there is no convincing scientific evidence that hormones in beef cause cancer and ruled that European Union’s ban is illegal and it inflicted damage worth $117 million a year on American beef farmers.

The third war which is looming is on genetically modified crops and food (GM crops) produced in the US and exported to Europe. American transnational companies such as Monsanto introduced herbicide-resistant soya beans and corn (maize) that makes its own insecticide. As it reduced the cost of insecticide these crops became popular with American farmers and by 1998, 42 per cent of America’s cotton crop, 40 per cent of America’s corn crop and 45 per cent of its soyabeans were genetically modified. GM crops had been cleared by the appropriate regulating authorities in the US. The consumers and the farmers in the European Union are opposed to GM crops and foods; no central regulator in European Union has cleared them to allay public concerns while the small farmers consider biotech as a threat. In far, the French farmers oppose GM crops and foods so vehemently that they ransacked several McDonald’s restaurants in France "to fight against globalization and advance the right of people to eat as they see fit". They demand that GM crops and food should be labelled so that the buyer can differentiate between GM and conventional crops and food. Some of the American exporters too seem to favour this proposal as a way out of the crisis. If it is not solved this way it can well lead to another trade war. In Japan, the Ministry of Agriculture, Forestry and Fisheries will require products containing genetically modified foods to be labelled as such starting in April 2001.

There is another war between Britain and France (unconnected with the US) over the French ban on the import of British beef. France imposed this ban when British beef was considered a threat to health on account of the ‘mad cow’ disease which prevailed at the time. France has persistently refused to lift this ban despite British pressure. When direct negotiations between the Prime Minister’s of the two countries failed, Britain made an official complaint to the European Commission. The Commission officials believe that the French are in clear breach of European Union law and have applied for a rare fast-track remedy from the European Court of Justice which could see the ban lifted within a month through an interim injuntion. If, however, the European Court rules in favour of France or France fails to implement a ruling against it, then the dispute may go to the WTO for arbitration.

American Protectionism

Protectionism is on the rise in the US. This is best illustrated by the , protectionist measures taken recently against imports of steel and lamb. In the case of steel the US imposed prohibitive import duties on steel from Japan and Brazil, forced Japan and Russia to accept voluntary restraints and filed anti-dumping and anti-subsidy cases against 18 other countries in order to cut down steel imports. Japan plans to file a complaint with the WTO over the US’s limit on imports of hot rolled steel products. In addition, it provided a subsidy package to US steel producers that includes $300 million in tax breaks and $ 1 billion of loan guarantees. The success of the steel industry in lobbying for import curbs has encouraged other industries to ask for relief too. The US authorities find it difficult to refuse because of the ballooning trade deficit and the popular fears of "unfair competition" from abroad. Further, they are wary of offending influential Congressmen.

Although the US produces only a little lamb of its own, it recently imposed quotas and tariffs on lamb imports from Australia and New Zealand and provided in addition $100 million in government aid for lamb farmers; It is reported that these measures were taken mainly to please two Senators from lamb-farming states. Australia and New Zealand protested against the US action calling it reckless and unilateral and breaches world trade rules; they plan to appeal to the WTO against the US.

Now some of the oil producers in US are clamouring for acion against what they allege as dumping of oil by foreign producers. As The Economist points out "America’s anti-dumping laws are such that it is all too easy to win import protection even without a case". So it will not be surprising if the US imposed anti-dumping duties on foreign oil imports in the near future. The US, however, will not be able to get away with it, for the other countries are planning to retaliate. Mexico has already suspended a move to lower import tariffs on American natural gas while Saudi Arabia and Venezuela which are also accused of selling oil on the cheap, are thinking of hitting back too.

The US already protects its agriculture - wheat, corn, sugar, groundnuts, dairy products and textiles and automobiles. The developing countries are fully aware of the restriction of their exports of textiles and garments under the Multi-Fibre Arrangement; the Caribbeans are complaining on the import quotas on their sugar and the Japanese resent the restriction of their exports under the so-called "voluntary trade restraint" agreements. American agricultural subsides - direct subsidies to farmers and cheap loans and guaranteed prices - amount to $23 billion which is equal to about 16 per cent of the country’s agricultural output. The system of "deficiency payments" to farmers who receive prices for their produce below the target level, will be replaced by government loans which the farmers can default if they earn poor incomes and compensatory grants in lieu of "deficiency payments". The farmers are expected to be better off under the new "safety net". The agricultural surpluses resulting from subsidies are dumped in developing countries at low prices (on account of export subsidies) to compete with and undermine domestic farming, especially in Africa.

Direct measures by government to protect and promote trade are also resorted to in spite of the- professed beliefs in free market economy and free trade. Boeing aircrafts is in receipt of liberal "research" grants and purchase orders from the Pentagon and government funds have been used to bail out private firms such as Chrysler, Lockheed and Continental Illinois Bank. Recently, the Long-Term Capital Management was saved from bankruptcy by the Federal Reserve System organizing 14 commercial banks to rescue it. The use of political muscle to promote trade is also practiced. President Clinton took political credit for getting an aircraft order of $6 billion from Saudi Arabia to Boeing and Commerce Secretary Ron Brown took to China, India and elsewhere planeloads of US businessmen claiming that his efforts procured them business contracts. Then there is the Buy American Rules which oblige the authorities to purchase many kinds of defence equipment made in the US, which is contrary to WTO rules of free trade.

Preferential treatment for Developing Counties

The fear of many developing countries, particularly in Africa, that they will not benefit from liberalization of trade is based on the fact that their exports had not expanded much in recent years. The average annual growth rate of exports of goods and services in the 31 years 1965-1996 was 2.1 per cent in the Sub-Saharan Africa as compared to 8.8 per cent in East Asia; further average annual growth of per capita GNR in this period was minus 0.2 per cent in Africa. The developed countries treated developing countries with sympathy before the Uruguay Round. They were treated as undeveloped needing help from the developed countries to develop their economies. Thus, the articles of agreement of GATT were amended in 1965 by adding a new chapter - Part IV committing "developed countries to assist developing countries as a matter of conscious and purposeful effort". Part IV laid down the important principle that developed countries would not expect developing countries in the course of trade negotiations "to make contributions inconsistent with their individual development, financial and trade needs". Developed countries also agreed to refrain from increasing barriers to exports of interest to developing countries and to give priority to reducing existing barriers including fiscal taxes.

Further, GATT set up the International Trade Centre in 1964 to help developing countries to promote their exports, and UNCTAD was established by the UN in that year to promote rapid economic development and expansion of grade of developing countries. The developed countries themselves, introduced the Generalized System of Preferences (GSP) in 1971 to extend non-reciprocal trade preferences to developing country exports. Preferential treatment of developing country exports was also recognized in the Tokyo Round in 1973. All these ended with the establishment of the WTO. Now, developing countries are treated as equals of developed countries and are expected to liberalize trade and investment regimes although they have been given a little longer time to do so. The developing countries consider this volte face unfair; even if a few developing countries have ‘graduated’ or become competitors in some goods to developed countries, the vast majority are still undeveloped. About 85 countries are not better off than they were ten years ago and the per capita income of 40 countries is less than what it was 20 years ago. There is no doubt that they need preferential treatment by the developed countries but they have to fight for it in the WTO.

Allocation of resources — through prices

by Analyst
The year 1989 saw the collapse of Communism in the Soviet Union, an experiment in politics and economics which lasted for 70 years. The institutions of Communism, namely one party dictatorship and a centrally planned economy failed. Why did central planning fail? Mainly because a modern economy is too complex for a set of mathematical economists to determine what to produce, how much to produce, how much resources to utilize etc. enterprises failed to satisfy the production targets, their managers were tempted to lie and cheat. In 1981 the First Deputy Chairman of the USSR Committee for National Control, A. Shitov reported that one out of every three enterprises was telling him lies to exaggerate its output. There were also distortions in prices which led to a misallocation of resources which ended in the production of goods which were not needed by the consumers. Without scarcity prices to signal the real priorities a case can be made for almost any investment project. The projects usually chosen are the ones with the most powerful pressure groups. Central planners are also unable to react fast to changing demand. So there is overproduction of some goods and shortages in others. The consumers spent long hours in queues. It was estimated that each day 98 minutes was the average time spent in standing in a queue in Poland under Communist rule between 1966 and 1977.

A Scottish Economist who wrote a book called the Wealth of Nations in the 18th century had called attention to what he called the invisible hand. He pointed how the prices of individual goods and services if determined in a free market would act as a signal to the wants of the people and show the extent of demand. These prices could and did provide signals to producers how much to produce since if he produced more the price would decline reducing his profit. So the principle of profit maximization would lead him to produce that quantity which would not bring down the price and cut into his profits.

Many well meaning people have questioned this assumption made by Economists that the average human being is rational and self interested. Critics point out to altruistic behaviour and argue that it falsifies the assumption. Economists don’t deny altruism.

What they point out is that some assumptions have to be made and they feel these are as good assumptions as are available to analyze social behaviour in the marketplace. Free markets are not an ideal either. But they are a better guide to production and investment decisions than central planning. Economists have always pointed out situations where markets fail and have accepted the need for intervention by the State on such occasions.

But just as markets fail so does State intervention particularly in weak and corrupt states which prevail in the Third World. So reform of the State must take priority if state intervention is to succeed. Otherwise the state’s regulatory agency will be a captive of the market actor nullifying the aim of regulation. Economist while assigning a role for government intervention in macroeconomics are critical of micro interventions

According to classical microeconomics all intervention is unwise. Left to itself, a free market can produce an allocation which is optimal. This is a special kind of optimality, named after Pareto based on certain assumptions like perfect competition. He showed that on certain kinds of assumptions a free market economy will allocate resources so that it is impossible to make somebody better off without making someone else worse off. So, Adam Smith’s invisible hand working through markets gathers information about tastes , attitudes, materials, technology and then combines them in a Pareto optimal way. No central planning system could be more efficient.

But for most of the past fifty years after colonialism developing countries have accepted the Communist model and intervened in markets causing great damage to economic growth. We saw Agricultural Boards dictating prices to farmers, industrialists regulated by being told how much capacity they should have in their plants or how much imported materials they should use. But some developing countries like Taiwan and Korea did otherwise. They had few resources and little arable land with high population density but they managed to achieve extraordinary rates of economic growth. How did they succeed so well? Essentially by trying to keep prices at the level that a free market would determine. To do this they used different methods and did not rule out state intervention. But they were clever about state intervention unlike the bulk of developing countries in Asia and Africa. Even China’s amazing growth rates are due to its policy of allowing free markets. Even with Communism the government allowed capitalism to flourish in a part of the country, namely southern China. One writer has stated that in the 1980’s it was a more capitalist place than India. In southern China, state ownership of property was the rule, but enterprise managers (like farmers throughout China) were given increasing freedom to run their businesses themselves. Even without private property, a separation of politics and economics was achieved and the price system began to direct the allocation of resources. India and Sri Lanka on the other hand although having extensive private property had a system of state control which was removed substantially only in the 1990’s in the case of India. Although we introduced the open economy in 1977, the bureaucracy is not committed to it. We hear again the Central Bank’s seeking to introduce exchange controls under the pretext of monitoring. It was Paskaralingam against the opposition of the Central Bank pundits who permitted the exporters to retain their export proceeds abroad if they chose to do so. Of course they did not retain export proceeds abroad because they needed such funds to pay back the banks and it was in their interests to do so as long as the expected depreciation of the rupee did not exceed the differential between local and foreign interest rates. The Central Bank has still to understand the futility of exchange control. The bureaucracy does not like to give up power. Free markets are still to be introduced for transport. Economic subsidies for diesel distort the allocation of resources. Soon the burden of oil prices will be felt. The large number of vans clogging the streets, half empty most of the time shows the colossal waste of fuel encouraged by the economic subsidy on diesel. Diesel vehicles also cause more pollution. There is still no free market for agricultural land or commercial rental space. Unnecessary tax concessions are given to promote private housing which would be undertaken in any case. Capital should flow on a priority basis to infrastructure before private housing.

Limitations of the market

But we cannot be carried away by enthusiasm for the free market economy. Just because the market puts price on what suppliers want and consumers are willing to pay we cannot treat all things as commodities. If people want to sell their babies or their body parts like kidneys do we allow them to do so? Similarly should there be a celing on hours of work or health and safety standards in the workplace? And child labour? In a liberal society freedom of choice is an important value. But then should one draw a line. Is the marketability of body parts or sex a result of an unequal society? Anyway, human beings we believe have an inherent dignity and the integrity of the person cannot be sacrifices on the altar of freedom. Man does not live by bread alone we are reminded by the Bible. In the case of the market for human labour or for health or life we cannot go only by the principles of the market. Everything cannot be for sale. Markets although they accomplish a great deal are not self regulating. They often spill over into realms where they don’t belong. So they need to be balanced by other social goals and norms if we are to have a humane society. Everything cannot be put up for the highest bidder. The loser would then suffer too much. Markets need countervailing forces be they religious or moral values which temper human behaviour. But free markets could provide faster economic growth which is important for developing countries with their large proportion of poor.

Critics of the Market

The common criticism of the free market economy is that it creates inequality of income distribution. This is correct particularly in the early stages of development when the rich grow richer and the poor poorer. But as growth proceeds there is a mitigation of such forces, particularly if structural changes like land reform are undertaken . Taiwan and Korea grew fast but sharply reduced income inequalities at the same time. Socialists are right to criticize the inequality in incomes in free market or capitalist economies. But their solution of socialism will not do. We need freedom as much or even more than equal incomes. Exploitation of man by man in the sense of master and slave is deplorable but is not strictly comparable to modern factory conditions.

The urgency of economic growth in the Third World also stems from the exploding population increase in these countries. Western Economists who argue for free trade and free markets are silent about free mobility of labour across frontiers. The Europeans grabbed the American and Australian continents to transfer their surplus populations. But they wish to keep out those from poor countries who wish to migrate for economic reasons. It is therefore prudent for them to see that the Third World generates adequate economic growth to keep their populations at home. Foreign Aid to poor countries is therefore in the long term interest of the developed countries. Of course such aid must be well targeted and well managed. The rulers of the Third World should not be allowed to waste such moneys. It is also necessary for the developed countries to open their markets to the goods, even manufactured goods of the Third World. They cannot resort to protectionism to save the unskilled or even skilled jobs of their workers. Attempts to impose labour standards on spurious moral grounds will only worsen economic conditions in the Third World. The developed countries use far too much of the worlds resources causing much of the environmental degradation. The developed countries burn up too much fossil fuel and consume scarce natural resources. The developed world can afford to slow down their industrial production. If competition from the developing countries causes unemployment, they could look after the problem with social security. In any case costs will go up even as the developing countries industrialize and they too would face competition from the still poorer countries. If the developed countries resort to protectionism, it would be a disaster to the developing countries.

In a relatively open world economy, low skill jobs can be done more cheaply by developing countries. Since the developed countries do not allow the labor from developing countries to enter their countries they must allow their goods to come in freely.

The President’s hate speech is unfortunate. We have to hang together or hang separately as the saying goes. The state is weak because of the fragile nature of the civil society. Sinhalese and Tamils live so intermixed that partition is unthinkable. Anything that creates more suspicion and fear is deplorable. A weak state cannot guarantee protection for the life and property of anybody at all. Our democratic institutions are undeveloped. A breakdown of law and order could occur at any time leaving the way open for any ambitious person in the forces to usurp power. Nawaz Sharif of Pakistan sought to exercise total power and incurred the hostility of the army. If the state strives to represent only the majority society will become more divisive and encourage extra democratic or undemocratic forces to stake a claim to the exercise of force in the name of one community or the other.

Determining the point at which a gathering disorder is getting too close for comfort may be a fine art. Already the media have been alarmed by the President’s pronouncements. Free markets are a necessary but not a sufficient condition for democracy.

Kelani Cables gives new owners a sterling performance

Kelani Cables Limited, now controlled by ACL Cables Limited, has completed the financial year ended June 30, 1999 on a high note with turnover up 14% to Rs.500 million and the operating profit more than doubled to Rs.83 million, the company’s latest annual report and accounts reveal.

The company’s new Chairman, Mr. U.G. Madanayake, said that the main reason for increased profits was a significant drop in raw material prices during the year under review and the tightening of expense controls.

ACL Cables acquired a 100% ownership of Lanka Olex Cables (Pvt) Limited for a sum of Rs.285 million after the balance sheet date. Lanka Olex controls 75% of Kelani Cables Limited.

Analysts expect synergies generated by the new ownership structure - ACL Cables and Kelani dominate the domestic cables industry - to be good for both companies. The Pacific Dunlop Cables Group which previously ran Kelani and exited from the company due to global re-organisation expanded the company and infused new technology.

Madanayake said that under the previous management of the Pacific Dunlop Cables Group, Kelani had added to its machinery to increase production capacity both in the current range of power cables and enamelled winding wire. The company had also added a new product range in the manufacture of low tension underground cables.

Madanayake who expressed appreciation of the efforts made by Pacific Dunlop in bringing Kelani Cables to its present standards said that the company had improved systems and controls in all parts of the organisation.

On top of the 15% interim dividend already paid, Madanayake said that his board was glad to recommend a final dividend of 10% to give shareholders a 25% return for the year against 20% paid the previous year. This was possible in view of increased profitability.

He expressed appreciation of the contribution made to the company by the three Pacific Dunlop appointed directors and the fourth director Jayantha Nagendran of the DFCC Bank. DFCC held 15% of the equity of Kelani’s holding company, Lanka Olex Cables.

The accounts reveal that management fees of Rs.5.1 million had been paid to the Pacific Dunlop Cables Group of Australia for management of the company and transfer of technical know-how for the expansion project.

The chairman expressed the sympathies of the present board of directors of the company and its employees on the death of Mr. Berty Wijegoonewardena, the founder of Kelani Cables Limited and its managing director since inception till 1994.

The group turnover during the year under review at Rs.500.3 million was up from Rs.439.4 million a year earlier while the pre-tax profit grew to Rs.98.9 million from the previous year’s Rs.50.5 million. The after-tax result was a profit of Rs.67.5 million, more than double the Rs.32.7 million earned a year earlier.

The group is carrying forward accumulated profits of Rs.120.2 million in its books at the end of the year under review.

The directors of the company are: Messrs. Andrew Stobart (Resigned 16.9.99), Ronald McGillivray (Resigned 16.9.99), Huat Tan (Resigned 16.9.99), Jayantha Nagendran (Resigned 16.9.99), U.G. Madanayake (Appointed 16.9.99), H.A.S. Madanayake (Appointed l16.9.99), Chandra de Silva (Appointed 16.9.99) and Mrs. N.C. Madanayake (Appointed 16.9.99).

Selling textile quotas now a big business

A huge multi-million rupeee racket by big-time garment manufacturers in respect of "visas’’ issued to garment factories by the Ministry of Industries has been discovered. These visas have been forged.

Investigations reveal that this illegal practice has been operated by a powerful group of manufacturers. The scale of this huge racket so far discovered may only be the tip of the iceberg.

Despite glaring evidence discovered by the Textile Quota Board (TQB), the operation of this on-going massive multimillion rupee visa forging by the BIG timers in the industry, has gone almost unpunished. The punishment that in fact was given is merely a 50% cut in quotas of these "highway robbers’’ for just one year. Although there was big talk that these forged visas have been reported to the CID by the ministry authorities and that the racketeers involved would soon be brought to book, nothing of the sort happened as far as the CID was concerned.

Some of the garment manufacturing factories have adopted another ruse called "shipthrough’’ by quota-holders to mint money and are today in the unique position of having the proverbial cake and eating it. By this sleight-of-hand "shipthrough’’ ruse, if a factory owner buying the quota performs, all the credit for this performance automatically passes on to the original quota-holder (i.e. the quota-seller). This is indeed a shocking practice to which the government has turned a blind eye for several years and has allowed to continue to this day.

However, we are happy that the TQB has taken steps to prevent such frauds in the future by introducing a computerised "ELVIS’’ system. The ultimate success of this so called new scheme will, however, depend on those who enforce it. Let’s hold our breath - wait and see.

Meanwhile, this huge fraud continues to be operated openly despite the fact that the rules and procedures governing the working of the TQB do not permit the transfer or sale of quotas. Quite often there are brazenly published newspaper advertisements announcing the availability of quotas for sale, but the TQB is yet to call up a single such illegal quota-sale advertiser and demand his explanation, leave alone punishing such violators of the law of the land. Such is the state of the implementation of our laws which governs the garment manufacturing industry. This cries to the high heavens for a relentless war to eliminate the racketeers.

Another huge racket being operated by quota holders is to tenaciously hold on to "HOT" categories of clothing, because they are certain that they can sooner or later sell them at exorbitant prices in the open market. To cite a recent example where a manufacturer received a No Foreign Exchange (NFE) order to export 40,000 pieces of a particular category of clothing to Canada, the maximum price the Canadian buyer could pay the manufacturer was only US$ 1.30 per piece (approximately Rs.92) on cutting, making and trimming basis (CMT)). The manufacturer who received the order did not have this particular quota; but the quota so desperately needed was available for sale in the open market at Rs.100 per piece. Obviously it was uneconomical for the manufacturer to buy the quota at this price to execute this order. He was thus reluctantly compelled to decline to accept the offer.

However, in June, 1999 this particular category appeared in the ministry common pool at Re.1 a piece. The manufacturer eagerly bought this and executed the order as he was able to obtain this quota at Re.1 per piece from the common pool. The manufacturer was indeed happy that he was able in this instance to pay Rs.40,000 for 40,000 pieces as against Rs.4 million he would have had to pay if he had to purchase the quota outside the common pool. If it did not come to the common pool, Sri Lanka would have lost the order for good.

It is a well known racket practiced by some big time manufacturers to make a fast buck by just selling their quotas illegally. Fortunes are being made by these big time racketeers by squeezing the less fortunate small manufacturers. Money made through these huge quota sales rackets is of course, untaxed and salted away in bank accounts abroad. Quotas are issued by the TQB as a birthright and not on merit of performance!!

Small manufacturers now urge the Ministry of Industries to appoint a high powered commission of inquiry to investigate the nature and the extent of the massive quota sales racket and the working of the TQB covering all its operating aspects and make appropriate recommendations for changes within the shortest time possible to eradicate the anti-national activities of the big time textile manufacturing racketeers who have over the years amassed massive untaxed fortunes by looting the small manufacturers in particular and the country in general.

These manufacturers would also make the following recommendations to the government for immediate implementation pending the completion of the report of the commission of inquiry:-

1. The present Textile Quota Board should be reconstituted and fresh blood brought in.

2. Transfer or sale of quotas be stopped forthwith and the maximum deterrent punishment imposed on those involved in such illegal transfers or sales.

3. "Shipthrough’’ is another word for "sale’’ and must be prohibited by law.

4. Sufficient quotas be channeled to the common pool at the commencement of each year.

5. No quota-holder should be allowed to apply for the pool quotas, if they already hold a similar quota.

6. In issuing quotas for year 2000 to all eligible apparel exporters the Textile Quota Board should ensure:

The criterion is past performance expansion etc. Before quotas for year 2000 are approved, the TQB must make a critical and a comprehensive survey of the factories involved to ascertain whether factories are in a position to execute these quotas. Ministry officials should check the factories for the number of employees, machines and whether EPF and ETF are paid to date etc.

7. The present practice of allowing 40% of the quota to be transferred should be stopped immediately, except for those specifically approved by the TQB. The fact is that these quotas are sold at exorbitant prices and only the rich companies can buy them.

Another sector neglected by the Textile Ministry is the non-quota exporter. Under the Export Development Board Incentive Scheme (EDIS), the non-quota exporter received an incentive. This incentive was used for capital development only, such as purchase of new machinery, import of new vehicles, purchase of land for factory etc. This scheme went a long way to help the small and medium industries. This scheme is no more and an alternative scheme must be formulated to help small industries.

The small and medium industry urgently requires a duty-fee vehicle and the ministry should consider this request very favourably, taking into account their value of exports, setting down minimum values to qualify for a duty-free vehicle.

In view of the fact that the exports of textiles and manufactured apparels have reached substantial proportions (Approx. Rs.50 billions per year), it is in the interest of the industry that a separate ministry is established to handle this portfolio.

A Manufacturer and Exporter
Far East, Far Advanced

A leading American advertising magazine, Retail Ad World, has found Odel, the local fashion retailer that has grown magnificently in the last decade to be ``Far East, Far Advanced.’’

For a New York publisher who candidly admits that ``some might find it hard to pinpoint Sri Lanka on the map,’’ giving a lavish colour spread in a prestigious advertising industry magazine to a small company located in a small country that to most American’s would be a far-away backwater, would in itself be a noteworthy event.

Odel is proud that its creative quality advertising has attracted global industry interest just as much as its innovation of making classy products of the country’s export garment industry easily available to the local consumer fired interest nationally.

Though the company is now going into exports, Managing Director Otara Chandiram says the bulk of its business is right here in Sri Lanka. 90% of what it markets is of Lankan origin although a few imports, mostly from the region, adds depth to the range it offers.

And has House of Fashion eaten into the trail blazer’s business? ``We cater to different segments,’’ says Chandiram who was quietly complimentary of their rival’s recent round-the-clock sales marathon. She and her husband, Raju, are firm believers that innovative new players help expand the market bringing business for everybody.

So read what Retail Ad World found fascinating about Odel, a company that has built up a ``world class success.’’

Some might find it hard to pinpoint Sri Lanka on the map, but in terms of retail innovation, Sri Lanka’s largest fashion retailer, Odel, has put itself firmly on the map. From its beginnings in 1989 when Otara Chandiram opened her first retail outlet, Odel has definitely been doing things differently. As the country’s first fashion retail store, Odel offered fashions that had previously been available only in markets abroad. Not surprisingly, a new way of dressing soon started to emerge.

Since that time, what was originally a staff of three 10 years ago has grown to 180. A new flagship store features all the facilities similar to that of an international department store. Housed in a colonial mansion, it carries clothes for men, women and children. There’s a children’s play area, cafe, mini gourmet supermarket and a hair salon. In addition, Odel operates three smaller stores, all located in the country’s capital, Colombo.

But the path to success hasn’t been all blue sky. Sri Lanka has had its ups and downs. "During our period of growth the country was and still is going through a period of civil unrest, the economy is slow and it was generally thought unwise for establishments to expand during this period,’’ says Chandiram, who is now managing director. "But by going ahead with our vision we believe that we have contributed substantially in the development of the retail industry in Sri Lanka today.’’ Middle to up scale local customers comprise 60% of Odel’s customer base. The other 40% consists of the resident foreign community, business travellers, tourists and airline crews.

Just as Odel took an unorthodox view toward going for growth when it did, the retailer’s advertising likewise has taken a path of its own. "Our advertising from the beginning has been different from the normal trend in Sri Lanka,’’ says Chandiram. "We strive to make our advertisements bold, striking to the point yet subtle. As such it has always stood out amongst the generally conservative advertising.’’

Initially their advertising consisted of newspapers and radio only, then Odel started running magazine campaigns a year ago. "Magazines in Sri Lanka have developed only over the last two years and now we have approximately four women’s fashion magazines and three business magazines,’’ Chandiram explains. "The business magazines were just growing in popularity and reached our target customer, both male and female. We also wanted to take the opportunity of having good quality reproductions,’’ she adds.

Odel recently aired its first TV commercial. The spot ran in May and June when many Sri Lankans were following their country’s progress during the World Cup Cricket Tournament held in the UK.

Direct mail is consistently utilised for a variety of purposes. "We have 7,000 customers on our mailing list who are informed of sales, new arrivals and other special events. We also send out questionnaires twice a year, enabling our customers to give us their suggestions for the improvement of our store and customer service,’’ says Chandiram.

She also points out that Odel was one of the pioneers in advertising awareness campaigns for conserving the environment. The company is one of the few that actively supports environmental conservation programs to create awareness and educate the public. "This is not purely a marketing exercise, as we at Odel share a genuine concern for the protection of wildlife and their environment,’’ she says.

In 1994 the company launched its "Working for Environmental Balance’’ campaign, which highlights the plight of Sri Lanka’s endangered forests, wildlife and the environment in general. Proceeds from certain items in the shops go toward helping the movement, giving customers the opportunity to make a personal contribution. Over the last six years the company has conducted a number of programs of its own in addition to supporting local environmental groups and individuals. They even have their own line of environmentally friendly postcards, note paper and wrapping paper.

New director at Serendib Leisure

Srilal Miththapala has been appointed a director of the Serendib Leisure Management Ltd., with effect from January 1 this year.

Although a chartered electrical engineer, he has had considerable exposure at senior management levels in the hospitality industry in Sri Lanka. He had a long stint of 14 years at the Confifi Group where he served in different capacities including director, operations and director, business development before joining Serendib Leisure in July last year.

His has also been involved in management training and development and is a resource person to several external training institutions.

Serendib Leisure recently went through a complete reorganisation and change of corporate image which included a new corporate logo and phased out upgrading of its hotel properties. It is perhaps the first hotel management company in Sri Lanka to break away from the traditional hierarchy and appoint a chief executive officer at it’s helm.

"I am very happy with the new developments at Serendib Leisure," said Mr. Miththapala and added that "the next few months will be spent on consolidation where the existing plants will be refurbished, services upgraded and human resources strengthened".

Serendib Leisure at present manages Hotel Serendib in Bentota, Hotel Sigiriya in Sigiriya, Hotel Reefcomber at Hikkaduwa, Club Hotel Dolphin in Waikkal and the Task Safari Camp.

The company also took over the management of Club Hotel Sea Spray in Negombo in mid December last year.

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